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Monopsony

Definition

A monopsony is a market structure in which there is only one buyer for a particular product or service. This means that the buyer has significant control over the price and quantity of goods or services they purchase.

Analogy

Imagine you're the only person in your neighborhood who wants to buy lemonade from a group of kids selling it. Since you're the only buyer, you have the power to negotiate lower prices and dictate how much lemonade they should make.

Related terms

Supply Curve: The supply curve shows the relationship between the price of a good or service and the quantity that producers are willing to sell. In a monopsony, the supply curve would be influenced by the buyer's power to set prices.

Market Power: Market power refers to an entity's ability to influence market conditions, such as setting prices or controlling quantities. In a monopsony, the buyer has significant market power due to being the sole purchaser.

Wage Discrimination: Wage discrimination occurs when workers are paid different wages for performing similar jobs based on factors like gender, race, or age. In a monopsonistic labor market, employers may have more leverage to pay lower wages due to their monopoly-like position as buyers of labor.